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United States Steel Corporation Reports Third Quarter 2002 ResultsPRNewswire-FirstCall United States Steel Corporation (NYSE: X) today issued the following: Earnings Highlights
(Dollars in millions except per share data)
3Q 2002 2Q 2002 3Q 2001
Revenues and other income $1,914 $1,807 $1,660
Net income (loss) per share $1.04 $0.28 $(0.26)
Net income (loss) $106 $27 $(23)
Adjustments to remove special
items (Pre-tax):
Federal excise tax refund (3) (33)
Insurance recoveries related
to USS-POSCO fire (2) (6) (21)
Pension settlement loss 10
Asset impairments - receivables 14
Costs related to Fairless shutdown 29
Costs related to Separation 1
Tax effect of special items
(at 35% statutory rate) 2 5 (3)
Net income (loss) adjusted for
special items $103 $17 $(17)
Net income (loss) - adjusted, per share $1.00 $0.18 $(0.19)
NOTE: Special items are discussed in Selected Notes to Financial Statement
United States Steel Corporation (NYSE: X) reported third quarter 2002 adjusted net income of $103 million, or $1.00 per share, significantly improved from the adjusted net income of $17 million, or 18 cents per share, reported in the second quarter 2002 and the third quarter 2001 adjusted net loss of $17 million, or 19 cents per share. In third quarter 2002, U. S. Steel reported net income of $106 million, or $1.04 per share, including the effect of special items, which on an after tax basis increased net income by $3 million, or 4 cents per share. Second quarter 2002 net income of $27 million, or 28 cents per share, included special items, which increased net income by $10 million, or 10 cents per share. The third quarter 2001 net loss of $23 million, or 26 cents per share, included special items, which in total increased the net loss by $6 million, or 7 cents per share. The income tax provision in third quarter 2002 and the tax benefit for the nine months reflect an estimated annual effective tax benefit rate for 2002 of approximately 31 percent. Third quarter 2002 income from operations before special items was $135 million, substantially improved from income of $32 million in second quarter 2002 and a loss of $16 million in third quarter 2001. U. S. Steel Chairman, CEO and President Thomas J. Usher said, "Our solid third quarter financial results were due largely to higher realized prices for both our domestic and U. S. Steel Kosice (USSK) operations, continued strong shipments and operating efficiencies. For the second consecutive quarter, our steel production facilities operated at high levels with domestic and USSK operations at 93.7 percent and 90.8 percent of capability, respectively. Aggressive actions to reduce our costs are paying off, and we're ahead of our $10-per-ton cost savings goal for the year." U. S. Steel's Flat-rolled segment recorded third quarter 2002 income from operations of $61 million, or $23 per ton. This was a substantial improvement from the second quarter 2002 loss from operations of $26 million, or $10 per ton, and the third quarter 2001 loss of $97 million, or $42 per ton. The average realized price in third quarter 2002 was $428 per ton, up $26 per ton from the second quarter and $34 per ton from the year-earlier third quarter. Flat-rolled shipments for the third quarter held at the 2.6 million net ton level of second quarter 2002 and were up 12 percent from the 2.3 million net tons shipped in the 2001 third quarter. The Tubular segment recorded income from operations of $4 million, or $19 per ton, versus income from operations of $6 million, or $28 per ton, in the second quarter, and $18 million, or $78 per ton, in third quarter 2001. Tubular shipments of 216,000 net tons were in line with second quarter 2002 shipments, but down 7 percent compared to the 2001 third quarter. The average realized price increased $27 per ton to $663 per ton from the second quarter, primarily due to product mix, but was down $15 per ton from third quarter last year. The USSK segment recorded income from operations of $40 million, or $40 per ton, for the quarter, compared with $26 million, or $24 per ton, in the second quarter and $39 million, or $38 per ton, in third quarter 2001. USSK's third quarter shipments totaled 1.0 million net tons, versus 1.1 million net tons in the 2002 second quarter and 1.0 million net tons in the 2001 third quarter. USSK's average realized steel price was $33 per ton higher than in the 2002 second quarter and was up $34 per ton from the 2001 third quarter. USSK's raw steel capability utilization in the third quarter declined from the second quarter rate primarily due to planned maintenance outages scheduled to coincide with normal seasonal customer demand patterns. Units comprising U. S. Steel's Other Businesses recorded income from operations of $30 million, compared with $26 million in the second quarter and $24 million in third quarter 2001. For the latest quarter, the coal, coke and iron ore units reported income from operations of $17 million, up from $11 million and $14 million in the second quarter 2002 and third quarter 2001, respectively. Available sources of liquidity at the end of the quarter were $794 million, an increase of $79 million from the prior quarter primarily due to improved operations. Looking ahead, shipments for the Flat-rolled segment in the fourth quarter are expected to decline moderately from third quarter levels, particularly in hot-rolled sheet, reflecting lower demand due to customer efforts to control inventories. However, the fourth quarter average realized price is expected to improve slightly from the third quarter due mainly to lower hot-rolled shipments and higher participation of value-added products, including electrogalvanized products from Double Eagle Steel Coating Co., which resumed operations on September 10, 2002. For full-year 2002, Flat-rolled shipments are expected to approximate 9.8 million net tons. Costs in the fourth quarter will be negatively affected by two scheduled blast furnace repair outages and higher prices for natural gas and scrap. For the Tubular segment, fourth quarter shipments are projected to be down versus the third quarter, and the average realized price is expected to be slightly lower than in the third quarter due mainly to product mix. Shipments for full-year 2002 are expected to be approximately 800,000 net tons as a recovery in North America drilling activity appears unlikely before next year. USSK's fourth quarter shipments are expected to be in line with the third quarter, and shipments for the full year are projected to be approximately 4.0 million net tons. USSK's average realized price in the fourth quarter is expected to be above the third quarter primarily as a result of a recently announced price increase for most products. An unfavorable pension settlement effect, currently estimated at approximately $100 million (pretax), will be recognized in the fourth quarter for the qualified non-union plan. This loss, which is an accelerated recognition of deferred actuarial effects, will be triggered by increased current year lump-sum distributions due to the higher than expected number of normal salaried retirements and last year's voluntary early retirement program that was completed in June 2002. This settlement will also require a remeasurement of the plan and, as a result, pension expense in the fourth quarter is expected to increase by approximately $15 million compared to the third quarter. Also, as previously disclosed, U. S. Steel may record an additional minimum pension liability in the fourth quarter for the qualified plan for union employees (See Note 9 of Selected Notes to Financial Statement). U. S. Steel recently announced that it has signed a letter of intent to sell its raw materials and transportation businesses to an entity formed by affiliates of Apollo Management, L.P. The transaction is subject to the negotiation of definitive agreements and other customary conditions, including approvals from the board of directors, lenders and regulatory agencies. The parties plan to reach definitive agreements by year-end 2002 with closing expected to follow in the first quarter of 2003. Under terms of the letter of intent, it is anticipated that U. S. Steel would receive approximately $500 million in cash and retain about a 20 percent interest in the new company, with the new company assuming all collective bargaining agreements, certain employee benefit obligations and certain other liabilities. U. S. Steel currently estimates the transaction could result in a pre-tax loss of up to $300 million. ***** This release contains forward-looking statements with respect to market conditions, costs, shipments and prices, potential asset sales, pension issues and customer matters. Some factors, among others, that could affect full-year 2002 market conditions, costs, shipments and prices include import levels, future product demand, prices and mix, global and company steel production, plant operating performance, domestic natural gas prices and usage, the resumption of operation of steel facilities sold under the bankruptcy laws, and U.S. and European economic performance and political developments. Steel shipments and prices can be affected by imports and actions of the U.S. Government and its agencies. Factors that may affect USSK results are similar to domestic factors, including excess world supply, plus foreign currency fluctuations, matters peculiar to international marketing such as tariffs, and completion of facility projects at USSK. Factors that may impact the occurrence and timing of the sale of the raw materials and transportation businesses to affiliates of Apollo Management, L.P. include the availability of financing to the buyer, completion of definitive documentation, and approvals from the board of directors, lenders and regulatory agencies. Factors that may affect the amount of the expected unfavorable pension settlement and resulting expenses for the qualified plan for non-union employees and the amount of any additional minimum liability for the qualified plan for union employees include, among others, pension fund investment performance, liability changes and interest rates. In accordance with "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, cautionary statements identifying important factors, but not necessarily all factors, that could cause actual results to differ materially from those set forth in the forward-looking statements have been included in the Form 10-K of U. S. Steel for the year ended December 31, 2001, and in subsequent filings for U. S. Steel. A Statement of Operations and Preliminary Supplemental Statistics for U. S. Steel are attached. The company will conduct a conference call on third quarter earnings on Monday, October 21 at 11 a.m. EDT. To listen to the webcast of the conference call, visit the U. S. Steel web site, www.ussteel.com, and click on the "Investors" button. Replays of the webcast will be available through October 28. For more information on U. S. Steel, visit our web site at www.ussteel.com. UNITED STATES STEEL CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
-----------------------------------
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions, except
per share amounts) 2002 2001 2002 2001
------------------------------------------------------------------------
REVENUES AND OTHER INCOME:
Revenues $1,905 $1,645 $5,097 $4,888
Income from investees 2 11 11 51
Net gains on disposal
of assets 2 4 7 20
Other income 5 - 40 2
------ ------ ------ ------
Total revenues and
other income 1,914 1,660 5,155 4,961
------ ------ ------ ------
COSTS AND EXPENSES:
Cost of revenues 1,611 1,540 4,518 4,714
Selling, general and
administrative expenses 74 51 245 154
Depreciation, depletion
and amortization 89 94 266 246
------ ------ ------ ------
Total costs and expenses 1,774 1,685 5,029 5,114
------ ------ ------ ------
INCOME (LOSS) FROM OPERATIONS 140 (25) 126 (153)
Net interest and other
financial costs 32 38 85 74
------ ------ ------ ------
INCOME (LOSS) BEFORE
INCOME TAXES 108 (63) 41 (227)
Provision (credit) for
income taxes 2 (40) (9) (183)
------ ------ ------ ------
NET INCOME (LOSS) $106 $(23) $50 $(44)
====== ====== ====== ======
COMMON STOCK DATA:
Net income (loss), per share
- Basic and diluted $1.04 $(.26) $.52 $(.50)
Weighted average shares,
in thousands
- Basic 101,926 89,223 95,767 89,223
- Diluted 101,926 89,223 95,769 89,223
Dividends paid per share:
United States Steel
Corporation Common Stock $.05 - $.15 -
USX - U. S. Steel Group
Common Stock - $.10 - $.45
Note: Net income (loss) per common share for the periods of 2002 are
based on the weighted average number of common shares outstanding
during the periods. Net loss per common share for the periods of
2001 are based on outstanding common shares at December 31, 2001,
the date of the Separation.
The following notes are an integral part of this financial statement.
UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENT
-------------------------------------
1. United States Steel Corporation (U. S. Steel) is engaged domestically
in the production, sale and transportation of steel mill products,
coal, coke and taconite pellets (iron ore); the management of mineral
resources; the management and development of real estate; and
engineering and consulting services and, through U. S. Steel Kosice
in the Slovak Republic, in the production and sale of steel mill
products and coke primarily for the Central European market. Prior
to December 31, 2001, the businesses of U. S. Steel comprised an
operating unit of USX Corporation, now named Marathon Oil Corporation
(Marathon). Marathon had two outstanding classes of common stock:
USX-Marathon Group common stock, which was intended to reflect the
performance of Marathon's energy business, and USX-U. S. Steel Group
common stock (Steel Stock), which was intended to reflect the
performance of Marathon's steel business. On December 31, 2001,
U. S. Steel was capitalized through the issuance of 89.2 million
shares of common stock to the holders of Steel Stock in exchange for
all outstanding shares of Steel Stock on a one-for-one basis (the
Separation).
The accompanying Statement of Operations includes the third quarter
and nine months of 2002 results of operations of U. S. Steel on a
stand-alone basis, while the third quarter and nine months of 2001
results of operations represent a carve-out presentation of the
businesses comprising U. S. Steel and are not intended to be a
complete presentation of the results of operations of U. S. Steel on
a stand-alone basis. The results of operations for the 2001 periods
contain certain transactions related to interest and other financial
costs that were attributed to U. S. Steel by Marathon based on U. S.
Steel's cash flows and its capital structure. Corporate general and
administrative costs were allocated to U. S. Steel during the periods
of 2001 based upon utilization or other methods that management
believed to be reasonable and which considered certain measures of
business activities, such as employment, investments and revenues.
Income taxes were allocated to U. S. Steel during the periods of 2001
in accordance with Marathon's tax allocation policy. In general,
such policy provided that the consolidated provision and related tax
payments or refunds be allocated based principally upon the financial
income, taxable income, credits, preferences and other amounts
directly related to U. S. Steel.
Effective January 1, 2002, net pension and other postretirement costs
associated with active employees at our operating locations are
reflected in cost of revenues. Net costs and credits associated with
corporate headquarters personnel and all retirees are reflected in
selling, general and administrative expenses. Prior year data has
been reclassified to conform to the current year presentation, which
resulted in a decrease in cost of revenues and an increase in
selling, general and administrative expenses of $41 million and
$121 million for the third quarter and nine months of 2001,
respectively.
2. In the second and third quarters of 2002, U. S. Steel recognized
pretax gains of $33 million and $3 million, respectively, associated
with the recovery of black lung excise taxes that were paid on coal
export sales during the period 1993 through 1999. These gains are
included in other income in the statement of operations and resulted
from a 1998 federal district court decision that found such taxes to
be unconstitutional. Of the $36 million recognized, $11 million
represented the interest component of the claim.
3. On March 1, 2001, U. S. Steel completed the purchase of the tin mill
products business of LTV Corporation (LTV), which is now operated as
East Chicago Tin. In this noncash transaction, U. S. Steel assumed
approximately $66 million of certain employee-related obligations
from LTV. The acquisition was accounted for using the purchase
method of accounting. Results of operations for 2001 included the
operations of East Chicago Tin from the date of acquisition.
On March 23, 2001, Transtar, Inc. (Transtar) completed a
reorganization with its two voting shareholders, U. S. Steel and
Transtar Holdings, L.P. (Holdings), an affiliate of Blackstone
Capital Partners L.P., which resulted in U. S. Steel becoming the
sole owner of Transtar and certain of its subsidiaries while Holdings
became the owner of the other subsidiaries. U. S. Steel recorded
$68 million in income from investees to reflect its share of the gain
recognized by Transtar as a result of the reorganization. Also, in
connection with this transaction, U. S. Steel recognized a favorable
deferred tax adjustment of $33 million related to its investment in
the stock of Transtar which is included in the provision (credit) for
income taxes. U. S. Steel previously accounted for its investment in
Transtar under the equity method of accounting.
4. U. S. Steel has a 16% investment in Republic Technologies
International Holdings, LLC (Republic) which was accounted for under
the equity method of accounting until the first quarter of 2001 when
investments in and advances to Republic were reduced to zero. On
April 2, 2001, Republic filed a voluntary petition with the U.S.
Bankruptcy Court to reorganize its operations under Chapter 11 of the
U.S. Bankruptcy Code. In the first quarter of 2001 as a result of
Republic's petition, U. S. Steel recorded a pretax charge reflected
as a reduction in revenues of $74 million for potentially
uncollectible trade receivables and recognized certain debt
obligations of $14 million which had been previously assumed by
Republic. As a result of further deterioration of Republic's
financial condition during the balance of 2001, an additional charge
of $68 million was recorded in the fourth quarter of 2001 to reserve
the remaining balance of pre-petition trade receivables and to
reserve a portion of other receivables established for retiree
medical claim payments made by U. S. Steel that were to be
subsequently reimbursed by Republic. These retiree medical cost
reimbursements are the subject of a pending request for treatment as
administrative expenses in the bankruptcy proceedings. On July 11,
2002, after a protracted auction proceeding, the Bankruptcy Court
issued an order approving the sale of substantially all of Republic's
assets which sale appears to have not produced sufficient cash
proceeds to satisfy all administrative claims. As a result of this
and other recent developments, U. S. Steel reassessed the likelihood
of collecting the retiree medical cost reimbursements from Republic,
even if U. S. Steel prevails in its claim for treatment as
administrative expenses, and recorded a pretax charge of $14 million
in the second quarter of 2002 to reserve the remaining balance of
these receivables. This charge is included in selling, general and
administrative expenses.
5. The income tax benefit in the nine months of 2002 reflected an
estimated annual effective tax benefit rate for 2002 of approximately
31%. A $4 million deferred tax charge related to a newly enacted
state tax law was also recorded in the second quarter. A pension
settlement loss now projected for the fourth quarter of 2002, in
addition to annual forecasted pretax income from domestic operations
and from USSK, have been included in the development of U. S. Steel's
estimated annual effective tax rate for 2002.
The income tax benefit in the nine months of 2001 reflected an
estimated annual effective tax rate for 2001 of approximately 45%.
The tax benefit also included a $33 million deferred tax benefit
related to the Transtar reorganization. In addition, net interest
and other financial costs in the nine months of 2001 included a
favorable adjustment of $67 million and the credit for income taxes
included an unfavorable adjustment of $15 million, both of which were
related to prior years' taxes.
6. Selling, general and administrative expenses for the nine months of
2002 included a pretax settlement charge of $10 million related to
retirements of personnel covered under the non tax-qualified pension
plan and the executive management supplemental pension program. Also
included in this same period of 2002 is the $14 million pretax charge
related to reserving Republic receivables, as discussed in Note 4.
Selling, general and administrative expenses for the nine months of
2001 included $9 million of costs, primarily for professional fees
related to the Separation.
7. Income from investees included pretax gains of $2 million and
$21 million for the third quarter of 2002 and 2001, respectively, and
$20 million and $23 million for the nine months of 2002 and 2001,
respectively, for U. S. Steel's share of insurance recoveries related
to the May 31, 2001 fire at the USS-POSCO joint venture.
8. On August 14, 2001, U. S. Steel announced its intention to
permanently close the cold rolling and tin mill operations at its
Fairless Works. In the third quarter of 2001, U. S. Steel recorded a
pretax charge of $29 million relative to the shutdown, of which
$12 million is included in depreciation, depletion and amortization
and $17 million is included in cost of revenues.
9. Statement of Financial Accounting Standards No. 87 "Employer's
Accounting for Pensions" provides that if, at any plan measurement
date, the fair value of plan assets is less than the plan's
accumulated benefit obligation (ABO), the sponsor must establish a
minimum liability at least equal to the amount by which the ABO
exceeds the fair value of the plan assets and any pension asset must
be removed from the balance sheet. The sum of the liability and
pension asset is offset by the recognition of an intangible asset or
as a direct charge to stockholders' equity, net of tax effects. Such
adjustments have no direct impact on earnings per share or cash. As
of September 30, 2002, the fair value of plan assets for the USS
pension plan for union employees was $4.4 billion. Based on asset
values as of September 30, 2002 projected to year-end 2002, we
estimate the ABO for this plan at the year-end measurement date would
exceed the fair value of plan assets by approximately $500 million.
The resulting required minimum liability adjustments would result in
a charge to equity of approximately $750 million at December 31,
2002.
UNITED STATES STEEL CORPORATION
PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited)
------------------------------------------------
Quarter Ended
September 30 June 30 September 30
(Dollars in millions) 2002 2002 2001
-------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS
Flat-rolled Products $61 $(26) $(97)
Tubular Products 4 6 18
U. S. Steel Kosice 40 26 39
Other Businesses:
Coal, Coke and Iron Ore 17 11 14
Straightline (11) (10) (10)
All Other 24 25 20
----- ----- -----
Income (Loss) from Operations
before Special Items 135 32 (16)
Special Items:
Federal excise tax refund 3 33 -
Insurance recoveries related
to USS-POSCO fire 2 6 21
Pension settlement loss - (10) -
Asset impairments - receivables - (14) -
Costs related to Fairless shutdown - - (29)
Costs related to Separation - - (1)
----- ----- -----
Total Income (Loss) from
Operations $140 $47 $(25)
CAPITAL EXPENDITURES
Flat-rolled Products $6 $6 $12
Tubular Products 13 10 -
U. S. Steel Kosice 11 17 17
Other Businesses 16 15 27
----- ----- -----
Total $46 $48 $56
OPERATING STATISTICS
Average realized price: ($/net ton)(a)
Flat-rolled Products $428 $402 $394
Tubular Products 663 636 678
U. S. Steel Kosice 290 257 256
Steel Shipments:(a)(b)
Flat-rolled Products 2,598 2,571 2,322
Tubular Products 216 217 232
U. S. Steel Kosice 1,009 1,105 1,017
Raw Steel-Production:(b)
Domestic Facilities 3,022 2,998 2,689
U. S. Steel Kosice 1,144 1,191 1,131
Raw Steel-Capability Utilization:(c)
Domestic Facilities 93.7% 93.9% 83.3%
U. S. Steel Kosice 90.8% 95.5% 89.7%
Domestic Ore Shipments(b)(d) 4,819 5,059 4,494
Domestic Coke Shipments(b)(d) 1,342 1,356 1,190
-----------
(a) Excludes intersegment transfers.
(b) Thousands of net tons.
(c) Based on annual raw steel production capability of 12.8 million net
tons for domestic facilities and 5.0 million net tons for U. S. Steel
Kosice.
(d) Includes intersegment transfers.
SOURCE: United States Steel Corporation CONTACT: Media: Mike Dixon or John Armstrong, +1-412-433-6870, or Web site: http://www.ussteel.com/ Company News On-Call: |
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